Interview with Neil Mitchell, 3AW

Well, they’re certainly being affected by this cap you’re putting on tax free meals and entertainment.

TREASURER:

Well, can I explain what happens at the moment. There are, for example, charities that have a $30,000 exemption cap in relation to fringe benefits tax.

NEIL MITCHELL:

Yeah.

TREASURER:

For hospitals and public hospitals there is a $17,000 exemption. They all remain.

NEIL MITCHELL:

Yeah.

TREASURER:

So every other worker in the community doesn’t get that. But they get an exemption from FBT for that amount of money. Now, in relation to a separate issue on meals and entertainment, at the moment there are some people who are using an uncapped benefit, uncapped, to pay for their weddings, to go overseas and undertake those sorts of things. We’re capping that at $5,000 just for meals and entertainment…

NEIL MITCHELL:

But those would be the real fat cats that are doing those things.

TREASURER:

No, no, no. Well, that’s right.

NEIL MITCHELL:

Yeah, but what about the average worker?

TREASURER:

Well, Sarah is – if you take one case example, Sarah is the nurse who earns $50,000 a year. She salary sacrifices $2,330 a year for dining out at restaurants, right. She’s not affected.

NEIL MITCHELL:

No. But if she salary sacrifices six grand, she is.

TREASURER:

And the bottom line is, she also gets a $17,000 exemption that everyone else doesn’t get for everything else.

NEIL MITCHELL:

Well, that’s – that may be true. But by any definition, you are going to affect the people who are low paid if they are salary sacrificing above your cap.

TREASURER:

No, no, no. But, Neil, if you’re doing that, you’re getting a lot more money. I mean, the bottom line is, do you think it’s right that people should be allowed to put weddings and 40th birthdays…

NEIL MITCHELL:

No. Of course I don’t. But I think the system was…

TREASURER:

No. Well, that is what’s happening.

NEIL MITCHELL:

The system was put in as a form of – we’ve had paramedics, nurses, low paid workers who are quite furious about it.

TREASURER:

Well, look, low paid workers would not be affected because most people, most people who claim it are under the $5,000 exemption, most people. So it actually affects higher income people that are going down that. So actually most of the claims are under $5,000. So the idea that someone on a low income is doing it, they’re not going to be affected.

NEIL MITCHELL:

Do you think there’s a possibility here – this has been argued to me – that some doctors, specialist doctors in the public system, who do this, and they are using above the five grand, will walk out of the system because they make more money in private enterprise? I mean, it is there – it is there to sort of encourage them to stay in the public system.

TREASURER:

Well, they’re still going to have a $17,000 exemption cap and there’s still $5,000.

NEIL MITCHELL:

Yeah.

TREASURER:

In relation to meals and entertainment. I just think that when the rest of the community gets no exemption – the rest of the community has zero dollars, and yet we’re still putting in place a $30,000 exemption cap in relation to – that’s unchanged in relation to charities. And a $17,000 exemption cap in relation to public hospitals. So I think it’s reasonable. They get more. They get more than everyone else. But we’re just trying to prevent people from putting their weddings and overseas trips and taking friends out to dinner from doing it at the expense of other tax payers.

NEIL MITCHELL:

So why not aim it just at the high end?

TREASURER:

Well, it is. We’re – from our perspective, we consulted. We consulted, Neil, with a range of people. There was a temptation to go to zero in relation to this because there’s already, as I said, another cap in other areas. But it was pointed out to us that would affect middle income people working in the system. So we put a $5,000 cap after consulting with people.

NEIL MITCHELL:

Something else, I’m still puzzled by the East West figure.

TREASURER:

Yep.

NEIL MITCHELL:

The $1.5 billion appears in your books – in fact, 14 per cent of your major savings, $1.5 billion. But you haven’t actually got it. Now, where do we stand? Are you going to want the 1.5 billion back from Victoria, or not?

TREASURER:

Yeah. Yeah, we are. And I’ll tell you why, because I can’t give money to someone for something that isn’t being built. We have put it – and I want to emphasise this – we are absolutely committed to East West, absolutely committed to East West. I have put it as a contingent liability in our books. You can see it written in our books, in our budget statement. It’s on our balance sheet as the payment that will be due if it is to be built. But I cannot – I’d be lying – my figures would be misleading if I were to put it into my Budget and say, “I’m allocating $1.5 or $3 billion to the East West Link when I know it’s not going to be built.

NEIL MITCHELL:

But the Prime Minister was here for me last week and he said, “Well, the money could well go to the Western Distributor.” Is that right?

TREASURER:

Yeah. And it may well do. But in the interim, under an agreement with the Victoria Government, if they’re not building the East West, they need to give us the money back. And we’ve said – as the Prime Minister said…

NEIL MITCHELL:

So you want to get it back and then give it back to them?

TREASURER:

Yeah. Well, I have to look at these are the books…

NEIL MITCHELL:

So really, I mean…

TREASURER:

You know, if you go to your Chief Financial Officer at 3AW, he’ll turn around and say, “Look, I can’t lie in the books. I’ve got an obligation to the Auditor General to put the numbers in.” I mean, you know, we’ll be speaking to the Victorian Government. They can’t go off – the purpose of giving the Victorian Government $1.5 billion was to build the East West Link.

NEIL MITCHELL:

Okay.

TREASURER:

Now, they’re not building it. So, yes, technically they have to give it back to us. And – but we have said, “We’ll look at other projects. But – but – we are absolutely committed to building East West Link.”

NEIL MITCHELL:

Okay. So Tim Pallas comes up with his cheque for $1.5 billion and you go to the bottom drawer and get another cheque for $1.5 billion and give it to him?

TREASURER:

Well it depends what it is Neil, I’m not going to go and just, I can’t hand out money, I’m not going to do that

NEIL MITCHELL:

Okay. Now, the small business thing. Is it correct that I can go and spend the $20,000, claim the full deductibility this week. And if I’ve got the money, I can go and spend another 20 grand next week and every other week?

TREASURER:

Yes, yes. And…

NEIL MITCHELL:

For the whole year?

TREASURER:

Well, the thing is, Neil, there’s already depreciation. There’s a depreciation schedule over a number of years for individual items for a small business. What we’re saying is instead of waiting four years to depreciate something, you can depreciate it immediately. So you’re getting your money back at any rate and it still costs you money. It still actually costs you money out of your pocket.

NEIL MITCHELL:

You’ve got to find the 20 grand. Yes.

TREASURER:

It reduces – but it also – it simply reduces your tax liability. It doesn’t mean that you’re not – you’re getting 100 per cent of the value back from the government.

NEIL MITCHELL:

No, no. But you’re getting a 100 per cent deduction, aren’t you.

TREASURER:

Yeah. That’s right.

NEIL MITCHELL:

Yeah.

TREASURER:

And what we want is for, you know, tradies to go out and buy the latest tools or for small businesses, coffee shops – whoever they are – to go out and have a go, buy the things that are going to improve their business. And if they do that, we’re going to help them with their cash flow so that then they can employ more people.

NEIL MITCHELL:

So who determines whether it’s a business expense, the Tax Department?

TREASURER:

They’re under existing laws. Yeah.

NEIL MITCHELL:

Okay.

TREASURER:

I mean, there’s a whole schedule with umpteen number of things on it.

NEIL MITCHELL:

Does it cover marketing costs?

TREASURER:

I don’t think it does. No.

NEIL MITCHELL:

No. It’s got to be for [inaudible]…

TREASURER:

It’s obviously got to be, you know, a physical thing.

NEIL MITCHELL:

Like computers and tools and a ute…

TREASURER:

Yep. That’s right

NEIL MITCHELL:

… and that sort of thing.

TREASURER:

Yep. And it can be second-hand. And, importantly, if you’ve already got a depreciation pool that is under $20,000 that you’re working through, you can deduct that immediately on the 1st of July as well. Because we want to try and get – improve the cash flow. That’s really important. If they’ve got greater cash flow at a time when you’ve got low interest rates, small business will have a go. And that’s going to be the big driver of growth.

NEIL MITCHELL:

Under this, if I’ve got 500 grand in cash I want to spend on business stuff, I can do it and get full deductibility?

TREASURER:

As long as no item is more than [inaudible] And I tell you what, if you’ve got half a million bucks lying around, you’re probably not going to be in business with a turnover of less than $2 million a year.

NEIL MITCHELL:

That’s true. That’s true. Okay. Now, I’m a bit confused. Last year you told us there was a budget emergency. Is the emergency over?

TREASURER:

No. We’ve come a long way. This is – this is the next step in our plan.

NEIL MITCHELL:

But how have you come a long way when most of your tough budget measures were blocked?

TREASURER:

Well, no, no. I don’t – I don’t think that’s right. I mean, if you look at what we’ve done, for example, we’ve significantly reduced foreign aid. We’ve been heavily criticised about that, but we did it because we had to do it. We couldn’t keep borrowing to hand out money overseas at the levels that the previous government insisted. We said we can’t have bonus payments for the states in relation to education and health, which the previous government built in but never paid for. We’re still increasing health and education by 6 per cent in real terms over the next four years, but you can’t have those bonus payments like Gonski and the hospital funding. So what we’ve done is we’ve taken measured decisions, and at the same time, we’re growing the economy. And we’ve faced huge head winds too, Neil, as you know. I mean the iron ore price…

NEIL MITCHELL:

So the emergency is over, on that basis.

TREASURER:

The emergency is – I mean, it stopped the day that we started handing out cheques to business. I mean, and I know that was difficult. I mean, SPC Ardmona being a case example. But we couldn’t – you know, remember what we went through with Qantas where the opposition were urging us to write out a government cheque, and thank God we didn’t. Their share price is what, three times what it was at that point.

NEIL MITCHELL:

But you did several times promise surpluses within your first year or two, and they’re not happening.

TREASURER:

Well, and we did on the basis – yeah. We did on the basis of the information that was available [inaudible] actually specified that at the time. I said based on what’s before us, we will bring in a surplus. But the thing is, the numbers weren’t true. The numbers weren’t true. And, look, I’m not suggesting, Neil, for a second that there isn’t more work to do. I mean, there’s a heap more work to do. But we’ve come a long way. We’ve got more work to do.

NEIL MITCHELL:

January 28 2013; our commitment is emphatic. We will deliver a surplus in our first year and every year after that…

TREASURER:

Yeah. Hang on…

NEIL MITCHELL:

And you haven’t done it [inaudible]…

TREASURER:

Hang on. January 2013. Do you have the lines that went before that quote?

NEIL MITCHELL:

I can give you one from May 16 2012.

TREASURER:

No, no, no, no, no. Hang on. No, no. Hang on, before that quote that someone’s given you, does it have a line based on the information today…

NEIL MITCHELL:

I’ve got no doubt you qualified it.

TREASURER:

No. I usually did. I’m not…

NEIL MITCHELL:

I’m not arguing that.

TREASURER:

…I’m not saying I’m perfect. But, I mean, I try to be and I give it a good shot sometimes, but I know I’m not. But…

NEIL MITCHELL:

Okay. Well, let’s – do you deny you’re a high-taxing government?

TREASURER:

Well, no. Actually, taxes as a percentage of GDP are lower – much lower than, for example, when the previous Coalition Government was in. I mean, if I had the numbers that were in in 2007, I’d have an extra $26 billion a year in revenue.

NEIL MITCHELL:

Well, bracket creep. 80 per cent of your new revenue is going – is bracket creep.

I – well, I agree. I don’t like it at all, and that’s why, over the medium term, we’ve built in a cap on tax receipts, which means that the only way you can get back to surplus – the only way you can get back to surplus – the only way you can start to pay off the debt is to reduce government spending, and as you can see, government spending…

NEIL MITCHELL:

But you haven’t.

TREASURER:

… is still too high.

NEIL MITCHELL:

But your spending has gone up in the next budget – this budget.

TREASURER:

Well, it’s 25.9 per cent of GDP, which is still too high. It’s not as high as the Rudd Government’s 26, but it’s – it’s just too high. And what we’re doing is, as you can see, over the next four years, we’re reducing it. We’re reducing it every year, and that’s helping us to get back to surplus. But there’s still more work to be done. I mean, you know, Bill Shorten says we’re not cutting spending enough and yet he’s proposing to increase spending. Well, we’re trying to reduce it. We’re doing our best.

NEIL MITCHELL:

You’re still taking a bit of a punt, aren’t you? I mean, you’re punting on the economy growing at a more significant rate, and you do that with, what, lower interest rates, a better exchange rate and petrol prices. Well, petrol prices started to move up already.

TREASURER:

Well, I mean, there’s – look – and, you know, I mean, there’s swings and roundabouts on everything. I mean, the iron ore price I’ve factored in at $48 a tonne today it’s at $58 a tonne. But, look, there’s always going to be swings and roundabouts on various indicators. What matters most is that you have a robust and flexible Budget that can accommodate some of those movements. Now, over the last 12 months, I’ve got – you know, I’ve lost the equivalent of $52 billion in revenue that we would’ve expected this time last year when iron ore prices were around $90 a tonne. Now, we’re dealing with that. We’re coping well. It’s been a bit of a setback, but at the same time, we’ve got one of the fastest growing economies in the developed world, and that’s a pretty good story, Neil.

NEIL MITCHELL:

What have done for manufacturing in Victoria?

TREASURER:

Well, the best thing we can do is help to get the Australian dollar down. I mean, that’s been the big mover. And when I last spoke to the Treasurer in Victoria, he said there were some good signs about manufacturing. The second thing we’re doing is we’re opening up new markets, and I think that’s huge. I mean, getting rid of tariffs in places like China, Japan and Korea that have been hit on our manufacturers and advanced manufacturers is a huge win. Andrew Robb has done a great job in that regard.

NEIL MITCHELL:

Who are the losers here? I mean, it’s stay-at-home mums and, what [inaudible] retirees?

TREASURER:

No, I don’t [inaudible] no, no, no, no. I don’t agree at all with stay-at-home mums being – I mean, the fact is we’re spending nearly three times on family tax benefits than what we spent on childcare, and the fact is that what we’ve done is we’ve tried not to increase the tax burden on everyday Australians. You know, backpackers that are coming here are going to have to pay taxes.

NEIL MITCHELL:

But you are increasing the tax burden just by bracket creep. 80 per cent of your revenue is bracket creep. The income tax goes up a third over the next four years.

Well – well, no it isn’t. As a percentage of GDP, it’s actually coming down. It’s actually coming down. But hang on; I want to tell you the other things. I mean, the fact is if people are investing from overseas in Australian real estate, they have to pay an application fee now, and that means money for our Budget. It’s also the case –I know there’s some fly-in-fly-out workers in Victoria that go into the mines in different parts of Australia – northern Australia. I’m sorry you can’t get the [inaudible] tax offset. Things like that. And most importantly, we’re going after those multinationals that are not paying their fair share.

NEIL MITCHELL:

Just finally, are you familiar with TunnelBear?

TREASURER:

TunnelBear? No.

NEIL MITCHELL:

I got onto it yesterday: a program I downloaded in two minutes which allows me to get around your Netflix tax without any problem without breaking the law. How are you going to collect it? How are you going to collect it? I mean, they’re basically ‑ in the United States [inaudible] go through [inaudible]…

TREASURER:

Well, we will go to TunnelBear under our new legislation, which I must say is global. So we pushed this in the G20 and we’ve got global agreement through the OECD [inaudible] that’s right [inaudible]…

NEIL MITCHELL:

Well, what about setting up a VPN in America?

TREASURER:

Well, no. Well, I mean, look, yes, that may be a way of doing it. But we are doing our best, and these companies are actually complying. So Netflix and others are actually saying, yes, we accept that we’ve got to charge the consumption tax in all these countries. So the Europeans have introduced it. A number of countries have introduced it or are introducing it, because it’s totally unfair…

NEIL MITCHELL:

I agree, but I just think…

TREASURER:

…for a local person who is producing a digital product to have to charge GST when someone based overseas isn’t.

NEIL MITCHELL:

Look, thank you for your time. Will this save your job?

TREASURER:

What?

NEIL MITCHELL:

The Budget.

TREASURER:

It’s not about my job, Neil. God – for God’s sake.

NEIL MITCHELL:

Well, what about Tony Abbott’s job? What about the Government’s…

TREASURER:

No, no, no [inaudible]

NEIL MITCHELL:

Well, it’s a political budget. It’s a political budget.

TREASURER:

You know what – no, it isn’t. You know what?

NEIL MITCHELL:

What?

TREASURER:

You know, I came into this job – I mean, what mattered most to me last night was having my kids there, because, you know what, selfishly, I want to make their lives better. I want to make their lives better. I want to make every Australian’s life better. And that’s why I’m doing it, Neil. I haven’t stuck in this job for so long to be so self-indulgent to worry about myself.

NEIL MITCHELL:

Yeah. Fair enough. All right. So when to we get indexation of tax rates?